Price Output Decisions Under Monopolistic Competition

As its name suggests, monopolistic competition embodies elements of both monopoly and perfect competition. The monopoly aspect is most forcefully observed in the short run. For example, consider Figure 11.2. With the demand curve, D1, and its related marginal revenue curve, MR1, the optimum output, Qv is found at the point where MR} = MC. Short-run monopoly profits equal to the area P1LMAC1 are earned. Such profits can be derived from new product introductions, product and process improvements, creative packaging and marketing, or other factors such as an unexpected rise in demand.

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